Understanding the experience modification rating is essential in determining your workers’ compensation premiums and in helping you identify ways that you can reduce your payments.
The experience modification rate is a credit or a debit and is found by comparing your company’s actual losses with the appropriate industry’s expected losses. There are factors that balance out certain data so that larger companies and substantial, unexpected losses do not result in an unfairly high premium. The MOD, as it is called, or EMR, was developed to encourage and account for a company’s commitment to safety and management efficiency.
If your company has an annual workers’ compensation premium that is more than $5000, it is subject to a premium modification rating. If you have a rating of 1.0 or higher, your claims are average or above those for your industry. Under 1.0, and you undoubtedly have an excellent safety record and competent management and will save substantially in premium costs.
To determine your claim average, companies will look back three years, though if your average was lower in the previous two years, your modifier will be brought down. Having a low modifier rate can be instrumental in competitive bidding where a company with a rate under 1.0 can be pre-qualified and is more attractive since you are not at risk for claims. Companies can also maintain a list of subcontractors who meet your company’s MOD or EMR standards.
Criticism of the MOD is that it omits a company’s safety record for the current year. Some critics believe the MOD is not a wholly accurate measure of a company’s commitment to safety or its job site safety record. Fraudulent claims are not accounted for, nor are preventable accidents distinguished from non-preventable ones that may have been a one-time catastrophe caused by some other company’s negligence.
The MOD or EMR also shows your safety record as it compares how much you are spending to what you are paying for premiums; expenditures higher than premium payments means you are not doing so well. Your lost man-hours and incident rate are probably too high for the industry.
The EMR is subject to data errors as it is computed by a private company funded by the insurance industry or state agency. The EMR is determined based on data furnished by the workers’ compensation carrier, which may be erroneous. A company that has been indemnified by another company for a loss may not have that fact recorded. Also, an insurer, which has to estimate the ultimate cost of a claim, may overestimate each claim to its maximum, adversely affecting your company’s EMR. Back claims may also raise an EMR that do not take into account the company’s otherwise stellar safety record.
Your EMR or MOD, though it has its drawbacks, is an index of a company’s commitment to safety with companies having EMRs of 1.2 or higher probably not safety minded and more likely to be poorly managed. DCDM Law Group can often help businesses save money from Workers Comp Overcharges, by conducting an audit on your behalf.